Release Date: August 15, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Successful implementation of transitional leadership arrangements, including the appointment of Sophia Rahmani as Managing Director of Magellan Asset Management.
- Stabilization of funds under management flows, with outflows slowing quarter-on-quarter and meaningful inflows resulting in higher funds under management.
- Generation of over $19 million in performance fees due to strong investment performance, particularly in the global equity strategy.
- Positive client engagement and growth in the Airlie business, with significant institutional inflows.
- Strategic partnership with Vinva Investment Management, enhancing product offerings and distribution capabilities.
Negative Points
- Reduction in funds under management over the year, driven by net outflows of $5.9 billion and $0.5 billion of distributions.
- Continued challenges in turning improved client sentiment into positive flows in the short term.
- Medium-term underperformance of the Magellan Global Fund against the benchmark, despite long-term goals being met.
- Retail outflows in the infrastructure strategy, despite some institutional client wins.
- Increased operating expenses guidance for the 2025 financial year, reflecting inflationary pressures and planned investments.
Q & A Highlights
Q: Can you provide more details on the strategic partnership with Vinva Investment Management?
A: Andrew Formica, Executive Chairman: The partnership with Vinva is a significant step in our strategy to diversify the business. Magellan will distribute Vinva's systematic equity products globally and to certain retail and wholesale clients in Australia. We have taken a 29.5% equity stake in Vinva for $138.5 million, aligning our shareholders with Vinva's success. This partnership will allow Vinva to focus on investing while leveraging Magellan's distribution capabilities.
Q: What were the main drivers behind the $19 million in performance fees generated in 2024?
A: Sophia Rahmani, Managing Director: The performance fees were primarily driven by strong investment performance in our global equity strategy, which returned over 50% in the second half of the year. This demonstrates the potential for performance fees if we can sustain strong performance for our clients.
Q: How has the conversion of the Magellan Global Fund closed class units to open class units impacted funds under management (FUM)?
A: Sophia Rahmani, Managing Director: The conversion led to some anticipated outflows as unit holders exercised their ability to redeem their investments. In July, we saw outflows of $0.8 billion and a further $0.4 billion by August 13, totaling $1.2 billion. However, this transition has been positively received by our client base.
Q: Can you elaborate on the financial performance and outlook for Barrenjoey Capital Partners?
A: Andrew Formica, Executive Chairman: Barrenjoey delivered a net profit after tax of $34.7 million in 2024, driven by revenue growth across all businesses, particularly fixed income. The business maintains a strong capital position and has repaid all working capital facilities. Barrenjoey intends to commence paying dividends, subject to Board approval.
Q: What are the key priorities for Magellan in the upcoming financial year?
A: Andrew Formica, Executive Chairman: Our priorities include implementing a new remuneration framework, focusing on employee engagement, delivering strong investment performance, expanding our presence in the US market, and commencing distribution of Vinva's investment products. We also plan to appoint Sophia Rahmani as CEO of Magellan Financial Group during the year.
Q: How has the Airlie Funds Management business performed, and what are the future plans for this segment?
A: Sophia Rahmani, Managing Director: Airlie has seen strong inflows and forward momentum, with institutional inflows of $1.4 billion in July 2024. The Airlie Australian Share Fund has delivered strong performance, driving positive flow outcomes. We also see potential for the Airlie Small Cap Companies Fund, which delivered over 14% in excess returns over the last 12 months.
Q: What is the outlook for operating expenses in the 2025 financial year?
A: Kirsten Morton, CFO: We have provided guidance for Funds Management operating expenses of $105 million to $110 million. This includes retention payments and executive talent acquisition costs. We also plan to bring forward investment in global distribution, which will see some incremental costs but is expected to be accretive in future years.
Q: Can you provide an update on Magellan's capital management position?
A: Andrew Formica, Executive Chairman: We maintain a strong balance sheet with $912.2 million in net tangible assets and no debt. Post the Vinva investment, we have approximately $555 million in cash and net fund investments. Our capital management strategy includes regulatory capital, seed capital for new funds, and strategic capital for growth opportunities.
Q: How has the global equity strategy performed, and what are the future plans for this segment?
A: Sophia Rahmani, Managing Director: The global equity strategy saw outflows of $5.7 billion in FY24, but the trend is improving. The Magellan Global Fund has shown improved performance since the change in portfolio management in February 2022. We are exploring distribution opportunities for our high-conviction and global opportunity strategies, which have produced robust investment returns.
Q: What steps are being taken to improve employee engagement at Magellan?
A: Andrew Formica, Executive Chairman: We are implementing a new remuneration framework with equity-based incentives and focusing on targeted training and development. Regular employee surveys help us track progress and compare results with peers. Improving engagement scores is a top priority for our senior leadership team.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
